A legacy of misdirected pricing initiatives in the UK telecomms industry, plus ?stifling? regulatory control, has put BT in a position to ?call the shots?. As operators compete aggressively on price large consumers would rather stay with the incumbent supplier than dive further into the confused market.
These are two conclusions of the latest annual telecomms survey by independent cost control consultancy, National Utility Services (NUS). It says BT has been able to retain control of the market by igniting price wars and confusing customers with constantly changing tariffs. Costs have plummeted by more than 25 per cent over the past year.
Andrew Johns, a director at NUS, said: ?Throughout 1996, the confusion caused by BT?s tariff reductions, backed by its relentless TV and poster advertising campaign, became its weapon against competition. By moving the goalposts regularly and constantly changing prices, BT, and to some extent Mercury, which also made strategic tariff changes during the year, thwarted those trying to pin down prices.
He continued: "These discounts also created a feeling of unease among telecomms managers considering proposals from alternative carriers, as the savings opportunities offered were often perceived as being short term.?
In the highly competitive international call arena the average price - based on a three-minute call to the US - has fallen in the past year by 25.3 per cent, a 65 per cent drop since 1992. The UK is now the least expensive country in Europe for international calls.
Even the less competitive area of local call rates registered a 9.1 per cent reduction, keeping the UK in fifth place in the European league table. National call price reductions have slowed down this year, dropping by just 4.2 per cent - a total decrease of 45 per cent against 1991/92 figures.
Although low prices are good for customers? invoices they can also have a negative impact on service quality and healthy competition. The NUS blames regulatory controls ?which have done more to stifle the growth of meaningful competition than to promote it?. BT rivals are unable to compete on ever-decreasing margins, a situation that becomes even more exacerbated as prices are artificially forced downwards, says the report.
Watchdog Oftel determines price caps from which suppliers calculate reductions. However, NUS claims price capping has had a negative effect and prevented competitors successfully challenging incumbent suppliers. Tony LeWarne, head of telelecommunications at NUS, said: ?Only when BT is forced to maintain prices at a set level, as AT&T was compelled to do in the US, will true competition be established and the UK finally see a David who can withstand the mighty Goliath.?
BT said it would continue its price cuts and is acting ?as expected and complying with Oftel?s price caps". A spokesperson refuted claims that price cuts cause confusion. ?We work hard to keep people aware of our prices. We also know that customers like choice so we?ve put together packages from which to choose,? she continued. She dismissed the report?s findings as ?suggesting we should raise our prices, which is ludicrous".
Oftel said it would produce fewer price caps in future and that the whole system would be reviewed. It recently published its guidelines on fair trading, which it says will ?prohibit licensees, when providing telecommunications services or running a telecommunication system, from engaging in activity which has the effect of preventing, restricting or distorting competition.?
The idea is to allow Oftel to act more quickly to prevent anti-competitive behaviour, explained an Oftel spokesperson. The watchdog will also focus on protecting small to medium and residential users. A new price cap, which limits increases to the retail price index (4.5 per cent), will be introduced from August and extend until July 2001 and will cover this market, a sector that accounts for 26 per cent of BT?s revenues.
NUS believes this will upset cable companies, which target the small business and residential market, because they already have to compete heavily on price against BT.
The consultancy said service levels have also been a casualty of falling prices. LeWarne believes the average telecomms user, especially companies and individuals not recognised as 'major accounts', are finding it more difficult to gain adequate service. ?This is not a criticism of specific carriers but an observation of the industry in general where there are fewer staff to look after more customers.?
This matches another recent survey of UK telecomms managers, who said suppliers are too concerned about bombarding the market with leading edge technology to the detriment of service quality. Only four in 10 managers surveyed selected ?overall quality of service? as the number one strength of their main supplier.
Overall, despite liberalisation introducing lower prices at the top end of the market, the average business comsumer has few obvious options when purchasing telecomms services, suggests NUS. It believes Cable & Wireless Communications, which pulls together a group of cable operators with Mercury, will have a good opportunity to makes its mark here. This is especially true of Mercury, whose inclusion will give it a better chance to succeed. By collaborating with cable companies, ?Super-Mercury?, as it is now dubbed, can take advantage of their local access networks and so remove the need to pay interconnection charges to BT.
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